Cleveland Fed President Mester's interest rate expectations

Policymakers should raise benchmark interest rates above 5% this year and keep them at restrictive levels for a while longer to tamp down inflation, Cleveland Fed President Loretta Mester said. The central bank will need to raise interest rates further to rein in inflation, Cleveland Fed President Loretta Mester said in a speech in New York. “How much the federal funds rate needs to rise from here and how long policy needs to remain restrictive will depend on how much and how much inflation and inflation expectations come down. Much of the demand is slowing, supply issues are resolving and price pressures are easing,” Mester said. The central bank raised its benchmark interest rate by 25 basis points at its March meeting, raising the federal funds rate to a target range of 4.75% to 5%. “My modal projection is that to put inflation on a sustained downward trajectory to 2% and keep inflation expectations steady, monetary policy moves into slightly more restrictive territory this year with the federal funds rate above 5% and the real federal funds rate,” Mester said. Mester is a non-voting member of the Federal Reserve’s 2023 committee but is an alternate member.